In a pre-budget move, cash-strapped railways on Friday effected a steep across-the-board hike of 14.2 per cent in passenger fares in all classes and a 6.5 per cent increase in freight rates to garner Rs 8,000 crore a year.

The decision, which will come into effect from June 25, marks implementation of an announcement of May 16, the day Lok Sabha election results came, when the hike was announced but put on hold immediately.

In a flip-flop, the ministry first announced Friday's hike will be implemented with immediate effect but later changed it to June 25, saying the officials needed time to execute it.

Announcing the decision, less than a month after the NDA government took over, railway minister Sadanand Gowda said, "I was forced to implement the order that was done by my predecessor. I am only withdrawing the withholding order."

He said the interim budget presented by the previous government had assumed certain revenues on the basis of the proposed hike that was announced on May 16.

The railway budget will be presented in Parliament in the first week of next month.

"Meeting the annual expenditure would not be possible unless the revised rates as finalized by previous government is implemented, hence order of withdrawing implementation of revised fare and freight has been withdrawn," said the railway ministry, which is incurring a loss of about Rs 900 crore per month in passenger segment.

"Accordingly, the revised passenger fare and freight rates and freight structure rationalization will come into effect from June 25, 2014," it said in a statement.

The hike was announced nearly a week after Modi said the country should be ready for "tough decisions" required to improve the financial health.

Two days back, Gowda had said he would meet Prime Minister Narendra Modi before announcing the hike.

While a flat 10 per cent has been announced in all classes, an additional 4.2 per cent increase under fuel adjustment component (FAC)-linked revision scheme will be effected on passenger fares, taking the upper revision of fares to 14.2 per cent, an official said.

The railways had earlier issued a notification on May 16 effecting hike in passenger fare by 14.2 per cent across the board and freight charges by 6.5 per cent from May 20. This was followed up with an official press release.

The May 16 fare hike decision, which had raised eyebrows as it came in the midst of Lok Sabha election results, led to a scurry of activities in Rail Bhawan on that day and the Railway Board went into a huddle to discuss its fallout.

Soon after, the red-faced railway ministry had put the decision on hold, saying the matter related to the revision will be left to the next government.

The then railway minister Mallikarjun Kharge came out with a statement directing the Board to leave the decision on the hike to the new government.

"It is now informed that under the directions of the minister of railways Mallikarjun Kharge, the decision on the proposed hike in the freight charges and passenger fares have been kept pended till further advice for placing this proposal before the new government," the statement said.

The railway minister had on Wednesday met finance minister Arun Jaitley and said that he would discuss the fare issue with the Prime Minister.

Seeking a significant increase in gross budgetary support, Gowda, along with minister of state for railways Manoj Sinha and senior railway officials, had met Jaitley as part of the pre-budget discussion.

About the discussion with Jaitley, the railway minister had said "it was a fruitful meeting with the finance minister who suggested some measures which will be reflected in the rail budget."

Gowda said "we have sought more budgetary support. There is a need for more funds for national projects."